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Results: Dow Inc. Exceeded Expectations And The Consensus Has Updated Its Estimates

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Simply Wall St
·4 min read
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Last week, you might have seen that Dow Inc. (NYSE:DOW) released its full-year result to the market. The early response was not positive, with shares down 9.7% to US$51.90 in the past week. It looks like a credible result overall - although revenues of US$38b were what the analysts expected, Dow surprised by delivering a (statutory) profit of US$1.64 per share, an impressive 126% above what was forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.

See our latest analysis for Dow

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earnings-and-revenue-growth

Taking into account the latest results, the current consensus from Dow's 13 analysts is for revenues of US$41.4b in 2021, which would reflect a solid 8.8% increase on its sales over the past 12 months. Dow is also expected to turn profitable, with statutory earnings of US$3.00 per share. In the lead-up to this report, the analysts had been modelling revenues of US$41.0b and earnings per share (EPS) of US$2.73 in 2021. So the consensus seems to have become somewhat more optimistic on Dow's earnings potential following these results.

There's been no major changes to the consensus price target of US$58.33, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Dow, with the most bullish analyst valuing it at US$68.00 and the most bearish at US$42.00 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that Dow's rate of growth is expected to accelerate meaningfully, with the forecast 8.8% revenue growth noticeably faster than its historical growth of 2.0%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 5.5% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Dow is expected to grow much faster than its industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Dow's earnings potential next year. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Dow going out to 2025, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Dow (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.